On April 9, 2020, the Federal Reserve released the term sheet for the Primary Market Corporate Credit Facility (PMCCF) to support the flow of credit to highly rated issuers with significant operations and a majority of its employees in the United States. On April 17, 2020, the Fed issued the first of a series of FAQs providing additional information on the PMCCF.  The Board of Governors of the Federal Reserve System and the Secretary of the Treasury may adjust the terms and conditions of the term sheet published on April 9, 2020, comments and advocacy are ongoing, and additional rules and guidance will supplement the information released to date.

The Primary Market Corporate Credit Facility, and the Secondary Market Corporate Credit Facility (“SMCCF”) designed to purchase corporate bonds and corporate bond portfolios (ETFs), were created pursuant to Section 13(3) of the Federal Reserve Act.  The PMCCF and the SMCCF (the “Facilities”) will be secured by a $75 billion Treasury equity investment and will have a combined size of up to $750 billion. Under the Facilities, the Federal Reserve will lend to a single purpose vehicle (“SPV”) on a recourse basis and will be secured by all assets of the SPV. The SPV in turn will purchase (1) new bond and loan issuances in the primary market and (2) outstanding corporate bonds and ETFs in the secondary market.  Purchases will be made under the Facilities until September 30, 2020, unless the Facilities are extended, and the Fed will continue to fund the Facilities until the Facilities’ holdings either mature or are sold.   

Eligible Issuers Under Primary Market Credit Facility

• Issuer created or organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States. 
• Issuer rated at least BBB-/Baa3 as of March 22, 2020 by a major nationally recognized statistical rating organization (“NRSRO”). 
  • Issuers downgraded after March 22, 2020 must be rated at least BB-/Ba3 by the time the Facilities make a purchase. 
  • The Federal Reserve Bank of New York has confirmed ratings will be accepted from S&P Global Ratings, Moody’s Investor Service Inc. and Fitch Ratings, Inc., and that additional NRSROs are also being considered. 
• Issuer is not: 
  • An insured depository institution or depository institution holding company, as defined by the Dodd-Frank Act. 
  • A recipient of specific support pursuant to the CARES Act or subsequent federal legislation. 
• Issuer must satisfy the conflicts of interest requirements in section 4019(b) of the CARES Act. 

Eligible Assets Under Primary Market Credit Facility

• Primary Market Credit Facility may purchase corporate bonds in a primary offering as the sole investor.
• Primary Market Credit Facility may purchase portions of syndicated loans or bonds but may not purchase more than 25% of any loan syndication or bond issuance. 
• Bonds or loans must be issued by an eligible issuer and must have a maturity of four years or less. 

Terms: Pricing and Fees

• For corporate bonds, pricing will be issuer-specific and will include a 1.0% facility fee.
• For syndicated issuances, the Primary Market Facility will receive the same pricing as other syndicate members and will include a 1.0% facility fee on the Federal Reserve’s share of the syndication.
• The Federal Reserve report to Congress dated March 30, 2020 states that interest payments will be deferred at the Issuer’s election for six months and such deferral will be extendable at the discretion of the Federal Reserve, however, further guidance is required to confirm the final deferral terms. 

Terms: Use of Proceeds, Maximum Amount and Refinancing Indebtedness

• An Issuer’s total outstanding bonds and loans at issuance of the Primary Market Credit Facility may not exceed 130% of an issuer’s maximum outstanding bonds and loans on any day between March 22, 2019 and March 22, 2020. 
• The Primary Market Facility may be used to refinance existing debt that matures in less than three months. 
• Purchases of an Issuer’s debt instruments, when combined with purchases with respect to the Issuer under the SMCCF, cannot exceed 1.5% of the combined potential size of the Facilities.
• Issuers may use the Primary Market Facility more than once provided each major NRSRO with a rating of the Issuer reaffirms the Issuer’s rating at BB-/Ba3 taking into account the additional debt issuance. 

Considerations and Next Steps for Primary Market Credit Facility

• Borrowers will need to review existing financing and contractual commitments, legal and regulatory frameworks and tax considerations.
• The details of the Primary Market Corporate Credit Facility and the Secondary Market Corporate Credit Facility are currently being developed.  
  • Businesses should review the program requirements and determine eligibility to participate and identify any hurdles to access.
  • Comments on the programs, and advocacy by interested parties, is ongoing and may significantly impact access to funds and program details.

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